Science, when applied to branch-performance measurement, can be blinding. So it comes as no surprise that applying simple profit/loss standards to branch-performance measurements can overstate a wealthy suburban site and overlook a slow, but promising inner-city center. Judging branches viewed only as satellite sales offices can produce internal headaches as to which location "owns" accounts: the branch that takes the initial deposit or the one the customer subsequently interacts with?
"People once looked at branch profitability as a be-all, end-all, as it seems it would give you the perfect answer," says Greg Lowell, Washington, D.C.-based senior manager of Accenture's financial-services strategy practice. "What has happened is banks are recognizing that is probably the wrong tool to be using in and of itself."
Even with P&Ls, banks apply differing weight to barometers like deposits, revenue or average daily sales per employee. Those figures don't account for all the metrics. "Probably north of 50 percent of the costs assigned to that branch are not in control of that branch," says Mitch Max, managing partner of The Performax Group, a boutique consulting firm in Toronto. "There's a lot of work to do to assign costs into those branch networks, and a number of banks choose not to treat a branch as a profit center."
Seeking to give banks that opening, Ottawa, Canada-based Cognos, a developer of corporate performance-management software, launched what it terms a branch performance "blueprint" geared for retail banks looking for improved branch profitability or, at least, evidence of it. Built from what it calls best practices in operational planning, budgeting and forecasting, the Web-based software tool drills past spreadsheets to find deeper views of branch-level customer segmentation, revenue and efficiency ratio. The tool leverages Acorn Systems' profit-analyzing technology. "What [existing metrics] can't get to is whether that branch is performing well because it's got a bunch of wealthy customers...or underperforming because they are doing an appallingly bad job in an area where they ought to be doing better," says Cognos's Laurence Trigwell, senior director of financial services. "It needs to be sufficiently detailed and sufficiently complex with an insight into why those branches are performing well or badly... rather than taking a sort of headline portfolio." Cognos declined to identify bank customers using the software.
Getting true branch-performance measurement is a critical gap that will only intensify as branches shift away from a transaction focus for customers also using online, ATM and call-center channels. According to a 2005 study of the recent "branch boom," Celent estimates that check-related transactions per branch will decline to 178 a day by 2010-compared to 364 in 2002. The research firm also pegged per-branch deposits at $38.6 million in 2004. While only a slight real-dollar decline from 2001, it's a "troubling sign" given industry consolidation during that time, according to the report.
Analytical tools could be applied to branch performance, but most CRM and ERP solutions at the corporate level aren't devised for that type of analysis, says banking group manager Alenka Grealish. An expertise fissure also exists, says Accenture's Lowell. Banks that use cost-accounting and cost-sharing practices for branch evaluations can derive misleading numbers-such as how much to discount sales figures from service-heavy urban branches.
Cognos officials say the product gets past these hurdles with a custom-fields portal that links what banks want to observe (revenue growth or fee income per branch) and tracks individual branch standings against forecasts and peer performance to get an early read on problem areas. For example, a branch's decline in money-market accounts within a wealthy area could be attacked with a timely iPod promotion. This could be valuable for institutions where branch-level service evaluation is lacking.
"When it comes to other dimensions beyond cost and productivity, they're all over that," says Grealish. "But when it comes to revenue generation [and] quality of customer service, the ability of the branch to encourage customers to transact remotely or take five minutes to teach them bill pay...that's where banks could use more data gathering and insight. [Banks] have to gradually shift to a sales culture and service culture. My strong belief is if you serve well, sales will come because banks are still not good at guessing the next best product. However, they don't have to guess. If they provide strong service, they're going to be on the short list. ...Those smart banks are rethinking the branch and, consequently, have different metrics they're measuring the branch against."
